Is Applied Materials a Buy?

It’s time to break down a major semiconductor name. Here is the break down on $AMAT, otherwise known as Applied Materials.


Current Price: $135.56

52/Wk High: $146.00

52/Wk Low: $46.22


Market Cap: $124.4 Billion

Dividend: $0.96 / 0.71% Yield


Read below for the breakdown!


Applied Materials ($AMAT) is a major semiconductor company that engineers some of the most complex process technologies used throughout the technology industry.


According to Applied Materials, the company enables customers to create larger capacity, more efficient, and higher resolution technologies.


Sifting through Applied Materials stock price according to TREFIS (@trefis) data, 66.8% of $AMAT is based on their Silicon Wafer Fab Equipment segment.


Furthermore, 25.6% is based on the Applied Global Services segment, 5.2% the Display segment, 0.1% the Energy and Environmental Solutions segment, and finally 2.4% is based on cash.


Recently, Applied Materials stock has been moving steadily to the upside, rallying a strong 38% in just the last three months, leaving investors to wonder if the name is still a buy.


Digging into the numbers, Applied Materials beat Q1 2021 expectations with an EPS of $1.39, better than the analysts EPS consensus estimate of $1.28. On a year over year basis, EPS improved by 41.84%.



Revenues significantly improved as well, jumping 24% year over year to a strong $5.162 billion. On a quarter over quarter basis, revenues increased by 10%.



Breaking down revenue growth the results are below by segment;


Semiconductor Systems: +26% YoY

Applied Global Services: +16% YoY

Display & Adjacent Markets: +24% YoY



As for margins, gross margin increased to 45.9% from 44.9%, representing a strong 100 basis point jump on a year over year basis. On a quarter over quarter basis, gross margin improved by 20 basis points.


Operating income was solid as well, jumping by $428 million year over year to a strong $1.496 billion. On a quarter over quarter basis, operating income increased by $171 million.


Operating cash flow jumped significantly as well to $1.421 billion, representing a $434 million increase in operating cash flow year over year. On a quarter over quarter basis, operating cash flow jumped by $106 million.


Rounding out Q1, free cash flow increased significantly to a strong $1.300 billion, representing a $415 million jump on a year over year basis.


Looking ahead to Q2 2021 management is setting the bar high, expecting revenues to total $5.39 billion, give or take $200 million.


Management is also expecting gross margin to jump to 47% and for the non-GAAP EPS to land around $1.50, give or take $0.06.


Shifting into the balance sheet the numbers are solid.


Total Debt: $5.449 Billion


Total Liabilities: $11.832 Billion


Total Assets: $23.305 Billion


Cash & Short Term Inv: $6.623 Billion


On a valuation basis, Applied Materials does trade at a premium.


Price to Earnings: 33.22x


Forward Price to Earnings: 20.88x


Price to Sales: 7.03x


Price to Book: 11.08x


Price to Cash Flow: 27.96x



Management has been quite effective.


Return on Equity: 38.32%


Return on Assets: 17.91%


Return on Invested Capital: 22.69%


Given the numbers the analysts are bullish with a mean price target of $153.45/share, representing a 13.26% upside.


The high price target is $195.00/share, representing a 43.93% gain, while the low price target is $113.00/share, representing a -16.59% downside.


The big money is quite involved as well with 80.67% of Applied Materials being owned by institutions. Top holders include The Vanguard Group, BlackRock Institutional Trust, and T. Rowe Price Associates.


On a technical basis, Applied Materials could be presenting opportunity. According to the six-month charts the MACD is shifting with potential downside momentum within a tight range around 6.08.


The six-month charts are also indicating an RSI of 60 and CCI of 65.95, both of which are falling off their highs.



In short, Applied Materials ($AMAT) is a strong semiconductor company with a solid management team, expanding revenues, and an industry that is just getting started.


EAT - SLEEP - PROFIT


Disclaimer: This is not direct financial advice, simply an opinion based on independent research.